Wind in your hair, sun on your skin –and ebb in your wallet

by Fred F. MuellerFebruary 6, 2013

Marketed in Germany like a beach dream, renewable energy rather looks set to become a financial nightmare.

Germany has fully embarked on an energy transition-enterprise, aiming at converting an 80 % share of its electricity generation to so-called renewable sources. Main focus is plants that generate electricity from wind and solar, complemented by biomass, energy from waste incineration and hydropower. Among the most striking arguments of the proponents of this policy is that all this is cheaper in the long run than conventional solutions, since wind, sun and water are available free of charge on a permanent basis. Furthermore, renewable energy had contributed to reduce prices on the electric power bourses. But despite the seemingly good news, one wonders why the German EEG levy (an add-on to Germany’s electricity bills) increases every year, with a breath-taking hike of 47 % this year. Reason enough to get the cost development of the EEG payments – the money collected from electric power users transferred to “renewable” energy plant operators – a closer look and to care about where this journey will take us in the in the coming years. Performing such a predictive assessment is greatly facilitated by a little basic math.

For such an analysis, one first has to find out the real costs incurred by the German citizens by looking at the payments to owners of “renewable” energy generation as stipulated in the German EEG law. This law intends to promote “renewables” by guaranteeing the operators fixed electricity prices over a 20-year period. For the consumer, these gross totals are much more meaningful than the seemingly "small" premiums per kWh that he finds on his electricity bill. The trick here is that what he sees on the bill is only a minor portion of the real story. The total cost is ultimately passed on to him not only by his direct energy consumption, but also over his entire other costs of living. Set aside export goods, all electricity costs charged to industry, commerce, trade and the public sector will, by way of higher prices, charges and taxes, end up draining the wallet of the average tax payer. There’s no way for any economy to function otherwise. The current public outcry by political forces now demanding not to allow exceptions for energy-intensive industries is insofar nothing but a hypocritical diversionary tactic aimed at misleading some shocked German citizens.

The relevant data can easily be found on the website of the information platform of the four German transmission grid operators 50Hertz, Amprion, Tennet and TransnetBW (www.eeg-kwk.net). Since the startup in 2000 these payments (1) rose from € 883 million to € 16.763 billion in 2011, picture 1 :

Picture 1: Yearly payments to the operators of „renewable“ power plants based on the stipulations of the EEG-law in € million (Source: eeg-kwk.net)

Where is the trend heading?

When looking at this cost development, anybody dealing with figures and calculations will quickly recognize that this does not reflect a gradual increase. Instead, the curve is becoming steeper and steeper. Such a pattern immediately challenges out to identify the underlying equation and then calculate the development to be expected in the coming years. This prediction is made easier since for political reasons, no significant changes to the EEG are in the cards, at least not for the next two to three years. One reason is the resounding failure of reduction ambitions of the then responsible Federal Minister Röttgen in the Bundesrat – the second chamber of the German political system – in 2012. Furthermore, new federal elections are scheduled by the end of 2013, and in view of the overwhelming popularity of “renewable” ideology in the populace, all political parties that have chances to form the next government are intensely committed to continue their vigorous support for the ongoing “energy transition”. Using just a little math quickly reveals that the current cost curve is best described by a quadratic equation. With its help, the probable development until the year 2015 can be easily predicted, see picture 2. By this date, the yearly gross total payments are set to reach an impressive € 28 billion.

Picture 2: Projection of the probable trend of EEG-payments from picture 1 until 2015

What are the real costs?

Worse still, the figures presented thus far actually reveal only a fraction of what is going to hit the population in the wake of the EEG payments that are currently made. As for an iceberg, whose biggest part is out of sight under the water, the columns in picture 1 only show the payments that have flowed or are forecast to become due during the given year. To get an idea of the size of the hidden overall burden, one must keep in mind that the guarantee for fixed remunerations for a facility recognized to fulfill the requirements of the EEG legislation remains valid for 20 years. The € 883 million from the year 2000 therefore merely represent the first rate of a total payment obligation of € 17.660,- million, an irredeemable “subscription” at the expense of the generality of the power consumers until 2020. These commitments have since grown year on year. The corresponding total numbers and their probable future development up to 2015 can be easily calculated with the help of a spreadsheet, picture 3. In 2012, the total sum of payments already made plus future payment obligations reaches a cumulative total of € 376 billion, which is the order of magnitude of a German federal budget. By 2015, this figure can be expected to reach an estimated € 570 billion.

Picture 3: Course and prognosis of the cumulated national total financial commitment until 2015 in € million

What does this mean for the citizen?

Looking at first at the annual burdening imposed on the individual resident respectively on the typical 4-person household, one can easily calculate the related amounts by dividing the yearly total costs through the number of inhabitants, which is roughly 81.9 million. This quickly reveals that even as of today, every inhabitant has to shoulder costs that are much higher than what he can see on his electricity bill, picture 4. Main reason for this difference is that while private households consume only about one quarter of the electricity sold in Germany, they have to additionally finance the full EEG costs for the remaining three quarters for the reasons already given. From a mere € 43,- per four-person household (4p-household) in 2000, these costs have in the meantime risen to € 919,- in 2012. By 2015, a further increase to € 1.386,- is to be expected.

Picture 4: Course and prognosis of the yearly real burden for a 4p-household from 2000 until 2015

The real base of the iceberg

But the true magnitude of the costs the ordinary German family is facing as a result of the EEG only shines up when the whole extent of past and current payments plus future obligations due to the 20-year-commitment is recalculated per household. Even if one would stop the further installation of “renewable” energy plants with immediate effect, these obligations are binding for the future. Already in 2012, this total burden of past and current payments plus irredeemable obligations due per 4p-household has reached a total of more than € 18.000,- (picture 5). If the current energy transition policy remains unchanged until 2015, this sum will increase to more than € 27.000,-. And even this impressive figure still does not reflect the whole picture, since neither taxes nor expenditures related to the enhancement of the power grid and necessary back-up systems (eg additional high voltage transmission lines, power storage plants or the proposed payments for unprofitable reserve power plants) are yet accounted for. One can therefore conclude that while wind and the sun may indeed never send an invoice, as the proponents of “green” policies like to broadcast, bills will certainly continue to be issued by the operators of renewable energy plants, which are entitled to a lavish risk-free return on investment guaranteed for 20 years thanks to the German EEG.

Picture 5: Course and prognosis of the cumulated total commitment for a 4p-household from 2000 until 2015

(1) - With respect to these figures, it is often argued that the (much lower) revenues for the proceeds received for “green” electricity at the power bourses should be deducted hereof, but for the analysis performed here, it seems permissible to let this aspect aside in the first run: in fact, what is happening is that electricity that is generated without necessity – remember Germany had until recently one of the soundest power generation infrastructures in the world – is dumped onto the market in fulfillment of the EEG stipulations. This goes at the expense of the other power producers, whose losses will again have to be covered by the public in one way or another. The result is highlighted by a recent article in the “Zeitschrift für Kommunalwirtschaft“ from Dec. 5th, 2012, which reported that the operators of the brand-new, cutting edge combined cycle gas power plant Irsching 5 in Bavaria intend to shut it down for a two-year period despite the fact that with its 60 % thermal efficiency, it is by far more efficient than any other thermal power plant type. According to the article, the operators argue that they are pushed out of the market by increasing quantities of “renewable” power sold at the power bourses at prices they cannot match.